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Gas Pains Hurt Costco

Lower gas prices and cannibalization eat into Costco's results.

It's old news by now that same-store sales at Motley Fool Stock Advisor selection Costco(NASDAQ:COST) were up 5%. Let's take a closer look at some of the factors that drove the increase.

That 5% same-store sales figure is made up of a 4% increase at U.S. stores and a 10% increase at the company's international stores. The 5% figure was driven by a combination of 1.5% higher traffic in the stores and an average transaction increase of 3%. In the U.S., the Northeast, Midwest, and Texas were the strongest performers.

Two line items in particular kept the company's results down. Lower gasoline prices year over year pulled same-store sales down 60 basis points (0.60%), and cannibalization from clustering stores together cost the company an estimated 140 basis points (1.40%). The company hopes that the multiple stores' long-term total returns more than make up for moderate short-term cannibalization. As for the ever-fluctuating gasoline sales, remember that they're designed to increase traffic and promote member loyalty, rather than drive large increases in profitability.

Internationally, the company said that Japan and Korea were its strongest markets. Here, too, the company's results had some external influences at play -- helpful ones, this time. Foreign exchange gains added 110 basis points (1.10%) to Costco's bottom line, thanks primarily to strength in the Korean won, Canadian dollar, and British pound versus the U.S. dollar. In local currencies, international same-store sales increased by 4%.

As a side note, I remain impressed that Costco can turn a profit in Japan with just a handful of stores. I'm looking forward to doing some on-the-ground research at a couple of the company's stores there next month.

Costco's results compare well with Wal-Mart's (NYSE:WMT) Sam's Club, where same-store sales increased 2% on top of last year's 6.5% increase, and the 0.6% increase at BJ's Wholesale Club(NYSE:BJ). Overall, Costco's results aren't bad, and earnings are only two weeks away. We'll get many more, and I'd argue more important, data points to work with then.

At the time of publication, NathanParmelee owned shares in Costco and had a beneficial interest in shares of Wal-Mart. He had no financial interest in any of the other companies mentioned. Wal-Mart is a Motley Fool Inside Value selection. The Motley Fool has an ironclad disclosure policy.